Jan. 24 (Bloomberg) -- Samsung Electronics Co., the world’s
biggest maker of smartphones, posted its slowest profit growth
since 2011 as new Apple Inc. iPhones lured high-end customers
and gains in the Korean won curbed the value of overseas sales.

Net income, excluding minority interests, rose 5.4 percent
to 7.22 trillion won ($6.7 billion) in the three months ended
Dec. 31, the Suwon, South Korea-based company said in a filing
today. That’s the slowest since profit fell in the third quarter
of 2011.

Asia’s biggest technology company is facing a squeeze on
profit margins as new iPhones and cheaper devices made by Lenovo
Group Ltd. and Huawei Technologies Co. crimp growth of Samsung’s
Galaxy devices. Currency moves cut about 700 billion won from
earnings, and the company made bonus payments to workers and
boosted marketing as it prepares to release its new S5 high-end
device to battle Apple.

“Earnings will remain stagnant this year as the explosive
growth of the past two to three years seems to have ended,”
said Lee Sun Tae, a Seoul-based analyst at NH Investment &
Securities Co. “Although the lower-end smartphone market will
continue to grow, the scale of profit from that segment doesn’t
compare to the high-end market so the growth seems limited.”

Samsung, which gets more than 80 percent of sales from
outside its home market, has been hit by the rising South Korean
currency, which cuts the value of overseas sales. The won was
the best-performing major Asian currency against the U.S. dollar
in the fourth quarter with a 2.4 percent gain.

Worker Bonus

The company also paid a special bonus of 800 billion won to
workers to celebrate the 20th anniversary of Chairman Lee Kun
Hee’s new management strategy, it said.

Shares of Samsung rose 0.6 percent to 1,307,000 won at the
close of trade in Seoul. Before today, the stock had fallen 18
percent from its record close of 1,576,000 won on Jan. 2, 2013,
wiping out $38 billion of market value, more than double what
Sony Corp. is worth.

Capital spending in 2014 will be similar to last year, it
said. The company spent 23.8 trillion won on capital expenditure
in 2013.

Fourth-quarter operating income at Samsung’s mobile unit,
the company’s biggest profit driver, was 5.47 trillion won,
little changed from a year earlier and down from a record 6.7
trillion-won profit in the quarter ended Sept. 30, the company
said.

First-quarter smartphone shipments are expected to rise at
a “mid single digit” rate from the fourth quarter, while
tablets are forecast to gain at a “high single digit” pace.

Wearable Devices

Samsung, which sells about one of every three smartphones
worldwide, plans to release the Galaxy S5 by April, pairing it
with the successor to its Gear smartwatch, Lee Young Hee,
executive vice president of the mobile business, said in a Jan.
6 interview.

The company is counting on new features to spark sales
after its predecessor, the S4, fell short of analyst
expectations amid competition from Chinese makers bringing out
smartphones costing as little as $100.

Samsung will announce at least one other wearable device
this year, Lee said without elaborating, as the company also
releases new tablet computers to take on Apple’s iPad.

“Samsung’s two major challenges for 2014 are to maintain
its mobile-phone leadership in China and the U.S., while
simultaneously growing its tablet business quickly enough to
knock Apple iPad from its perch,” said Neil Mawston, an
executive director at researcher Strategy Analytics. “A flood
of Asian rivals from China and India, such as Lenovo, as well as
a product refresh from Apple, are pressuring Samsung.”

Apple Shipments

Apple shipped 33.8 million smartphones in the quarter ended
Sept. 30, the iPhone maker said. The company started selling the
iPhone 5s and the cheaper 5c in September. Samsung shipped 9
million units of the S4 in the fourth quarter, according to a
Jan. 8 report from Daewoo Securities Co.

Samsung also faces a new threat from Apple after the
Cupertino, California-based company struck a distribution deal
with China Mobile Ltd., the world’s biggest carrier by users.

Samsung is the top seller in China, where large-screen
devices such as its 5.7-inch Note have won customers who prefer
one device for checking e-mail, browsing the Web and watching
videos. The iPhone has a 4-inch screen.

“It’s critical that Samsung comes up with new designs in
order to protect its market share from Apple in the high-end
segment,” said Jae H. Lee, a Seoul-based analyst at Daiwa
Securities Group Inc. “No rapid earnings growth is expected
this year as margins at its handset business will remain
pressured.”

Chip Rally

To address such challenges, the Galaxy maker’s next Note
handset may use a three-sided display so messages can be read
from an angle, Samsung’s Lee said Jan. 6. The latest model will
be released in the second half of this year and be aimed at the
high-end segment.

Operating profit at Samsung’s chip division, a supplier to
Apple, was 1.99 trillion won, compared with 1.42 trillion won a
year earlier.

A fire at an SK Hynix Inc. factory in Wuxi, China, in
September pushed up chip prices, which remain near three-year
highs. The price of the benchmark DDR3 2-gigabit dynamic random-access memory chip reached $2.91 on Jan. 23, according to
DRAMeXchange, Asia’s largest market for the components. That
compares with $1.60 on Sept. 4, when the fire hit.

“The semiconductor business will perform better this year
than last year,” said Lee Do Hoon, an analyst at CIMB Group
Holdings Bhd in Seoul.